Windstream 2006 Annual Report Download - page 78

Windstream Corporation
Form 10-K, Part I
Item 1. Business
PRODUCT DISTRIBUTION
Windstream’s product distribution subsidiary, Windstream Supply Inc. (“Windstream Supply”), is a nationwide
provider of telecommunications equipment and logistics services to Windstream affiliates and contractors, as well as
non-affiliated customers. In 2006, 2005 and 2004, 58 percent, 57 percent and 53 percent, respectively, of Windstream
Supply’s sales were to affiliated companies. Non-affiliated customers include other local exchange carriers and
communications providers, voice and data resellers, colleges and universities, governments, retail and industrial
companies. Windstream Supply operates four warehouses and four counter-sales showrooms across the United States
to maintain a wide variety of products used to support voice, high-speed data and video applications. Windstream
Supply offers a large variety of telecommunications-related products for sale. Certain of these products are inventoried
including switch modules, wired and wireless voice and data transport equipment, outside plant products and pole-line
hardware, broadband modems, in-building wiring and jacks, VoIP telephone systems and local area networking
products. Windstream Supply experiences substantial competition throughout its non-affiliate customer base from
other distribution companies and from direct sales by manufacturers. Competition is based primarily on quality of
service, product availability and price. To differentiate their offerings, Windstream Supply also offers other services to
their customers including expert technical assistance, product configuration, specialized logistics services and a web
tool used by customers to place orders and track order status. Windstream periodically evaluates its product and service
offerings to meet customer expectations and to position Windstream Supply in the market as a quality, customer-
focused distributor. In 2006, Windstream Supply recognized revenues of $141.0 million from external customers,
achieved segment income of $4.8 million, and held total assets of $53.8 million.
OTHER OPERATIONS
In 2006, Windstream’s other operations, consisting of its directory publishing and telecommunications information
services businesses, recognized revenues from external customers of $150.8 million and achieved segment income of
$12.6 million and total assets of $80.0 million.
DIRECTORY PUBLISHING
The directory publishing subsidiary coordinates advertising, sales, printing, and distribution for 378 telephone directory
contracts in 35 states. Of the total number of directory contracts published, 158 contracts pertain to Windstream’s
subsidiaries. The directory publishing subsidiary provides all directory publishing services, except printing. The
services provided by the directory publishing subsidiary includes directory yellow page advertising sales, contract
management, production, billing, and marketing. Both R.R. Donnelly and Quebecor World Printers performed printing
services for the directories published in 2006 under two separate service agreements that expire in 2007 and 2008,
respectively.
On December 12, 2006 Windstream announced that it would split off its directory publishing business in what
Windstream expects to be a tax-free transaction with entities affiliated with Welsh, Carson, Andersen and Stowe, a
private equity investment firm, as discussed above in Pending Transactions.
TELECOMMUNICATIONS INFORMATION SERVICES
Following the sale of certain assets and related liabilities, including selected customer contracts and capitalized
software development costs to Convergys Information Management Group, Inc. in December 2003 and the loss of one
of its remaining unaffiliated wireline services customers in 2004, Windstream’s telecommunications information
services operations consisted solely of providing data processing and outsourcing services to Valor. Immediately after
the consummation of the spin-off and merger with Valor, the Company no longer incurs revenues and expenses for
these activities.
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